FRANKFURT, Germany — German-based DaimlerChrysler said Monday it will sell almost all of money-losing Chrysler to a private equity firm for $7.4 billion, backing out of a troubled 1998 takeover aimed at creating a global automotive powerhouse.

Eighty percent of Chrysler Group, burdened by high pension and health costs and declining market share in the United States, will be sold to Cerberus Capital Management LP. Cerberus is taking a huge risk by agreeing to take on billions of dollars in pension and retiree health care costs at Chrysler.

Cerberus Chairman John Snow, a former U.S. treasury secretary, told a news conference in Germany that the New York-based private equity firm believes in Chrysler and wants to see the company recover.

“We think at this particular point in Chrysler’s history, there may be opportunities in the private world, the world of private investment, that create more room for growth and expansion, that allow management to focus with greater intensity on the day-to-day business of producing better cars,” Snow said.

DaimlerChrysler AG said it will sell 80.1 percent of the money-losing Chrysler to Cerberus. It was a stunning reversal of the $36 billion takeover by Daimler-Benz AG in 1998 that was meant to be a blissful marriage of Germany's Mercedes and the American Jeep and Dodge brands.

Cerberus has steadily been building strength in the automobile business. It led a consortium that bought a majority stake last year in General Motors Acceptance Corp., the financial arm of GM, and plans to invest in ailing auto parts giant Delphi.

The prospect of a sale to a private equity firm had worried unions in the United States and Canada because of the firms’ tendency to slash costs and jobs.

Daimler will retain 19.9 percent of Chrysler and continue to work with it on drive systems, purchasing, sales and financial services outside North America. But it was clear that DaimlerChrysler and its chief executive Dieter Zetsche, who tried to prop up sales in the U.S. with his “Dr. Z” television commercials, had lost confidence that a combined Chrysler and Daimler could be a worldwide automotive leader.

“We determined that DaimlerChrysler, as currently structured, would not provide the best” framework, Zetsche told reporters in Stuttgart, adding that “at the same time, given my experience with and commitment to Chrysler, this was a difficult task for me personally.”

DaimlerChrysler said the deal is likely to be completed by the third quarter and would reduce its overall profit by as much as $5.4 billion for 2007.

Snow said that under Chrysler’s leadership, the company’s quality and productivity have risen and that the company has new products that will be well-received in the marketplace.

“We’re going to support those initiatives and we’re going to support your plans,” he said.

Shareholders must approve changing the German company’s name to Daimler AG. A vote will likely be scheduled this fall, the company said.

Private equity firms typically use money provided by pension funds and hedge funds and wealthy private investors to acquire public companies or parts of companies and take them private, often to reorganize and later sell at a profit.

But Snow said Cerberus would focus on longer-term earnings.

“We don’t think about the next quarter. We don’t think about what analysts have to say about us. We care very much about producing long-term results for investors,” he said.

The United Auto Workers’ endorsement of the transaction was a shift from earlier this year, when UAW President Ron Gettelfinger warned that a private equity buyer would “strip and flip” the company by selling it off in pieces.

Gettelfinger, speaking on WJR-AM in Detroit, said he made a last-minute pitch to keep Chrysler with Daimler over the weekend, but when that failed, he decided to embrace the Cerberus purchase.

“We did make a last-ditch effort pitch this weekend in Stuttgart with Dr. Zetsche about maintaining the status quo. That appeared to be less and less an option. He made it unequivocally clear it was no longer an option. He spent an hour and a half taking us through the entire selection process,” Gettelfinger said.

“We made the pitch all the way home that we wanted the Chrysler Group to stay under the Daimler umbrella but it’s not there. The decision has been made, we’re supportive of it.”

“We’re going to close that past chapter. We’re going to move forward.”

Canadian Auto Workers President Buzz Hargrove said he was assured that the collective bargaining agreement with Chrysler would be honored and that no jobs would be eliminated.

Analysts said last week that Magna International founder and Chairman Frank Stronach was the likely leading bidder for Chrysler. Billionaire investor Kirk Kerkorian, who tried to take control of Chrysler in the 1990s, also had said he would make a bid, but that was apparently spurned.

Zetsche announced Feb. 14 that all options were open for Chrysler, which lost $1.5 billion last year and is undergoing a restructuring plan that will eventually shed 13,000 jobs.

Snow said the deal was a sign of faith in Chrysler, an iconic American brand and third-largest U.S. carmaker behind General Motors Corp. and Ford Motor Co.

Norris Freeman III, 33, of Detroit, a 12-year Chrysler employee who works the line at the Warren Truck Assembly Plant, was skeptical of the move.

“I don’t think Cerberus is going to do us any justice. I think Kirk Kerkorian had a better interest in us. I think Cerberus is in it just for the money,” he said.

Cerberus also has former Vice President Dan Quayle as an adviser. David W. Thursfield, who used to run Ford in Europe, is a senior member of the operations team in Cerberus’ automotive and industrial practice. And Wolfgang Bernhard, former Chrysler chief operating officer, is a newcomer to Cerberus.